You may not be familiar with the term, interchange optimization, but you will want to understand what it means and how this can impact your business and your bottom line.
Interchange Optimization is of importance because most of the cost for accepting credit card payments is tied to card issuing banks in the form of what are known as interchange fees. It can then become a real struggle to gain access to lower processing costs for accepting payments.
What is an Interchange Rate?
The intercharge rate is connected with credit card acceptance and processing, including those for business-to-business transactions and card-not-present purchases. It is the money that is transferred from the acquiring bank to the issuing bank for each bankcard transaction. Interchange fees are established by the card brands.
The process of categorizing a transaction is known as interchange qualification, and this qualification happens on a per-transaction basis.
There are a number of factors that are used to determine where a transaction qualifies at interchange. Some of these factors can be controlled or influenced by a merchant, including the processing method like card present or card-not-presnt, transactional data supplied, and the inclusion of a merchant category code. There are also interchange qualification factors that a merchant can't control, such as the card type, card brand, and card owner.
Intercharge rates can change based on the quality of the information and level of data protection that occurs between the credit card process and the bank. The higher quality data that can be provided about each transaction the lower your interchange rate, which can lead to significant savings when you look at the volume of transactions your business may process.
Lower quality data leads to greater fees. This might includes transactions that have missing data or missing authorization data. Also, if an authorization that was never settled has not been reversed, you will also experience extra credit card transaction fees.
Optimizing for Rate Deduction
That’s when it becomes important to look for areas of improvement in your commerce business, so you can get the cheapest interchange rate possible. It involves ensuring that every transaction has all the data that is required by the card associations.
Tools are now available that provide the technology that can integrate with hosted shopping cards, POS terminals, and ERPs to assess each transaction and remove any human error from the process so all the necessary data is collected and submitted to the card brands like Visa and MasterCard. The data necessary to avoid an increase in interchange rate includes entering the billing address of the cardholder with each sale with zip code and street address number.
Another way you can optimize your interchange rate is to settle all transactions within 48 hours after the transaction is processed and submit Level 2 or Level 3 data with each transaction. This additional data provides all the necessary information that can help you get that low rate you need to maximize your profitability.
Otherwise, if you leave the transactions to be settled later on, the costs related to those transactions will continue to rise. This is easy to avoid some extra charges by just getting all transactions processed quickly – the same day, if possible.
You should also avoid authorizing or settling for differing amounts other than the exact amount of the transaction or forcing a sale through without the necessary authorization. Although these situations are rare, it’s good to be aware of them so you can look to see if this is an area of improvement in your business.
When situations occur that cause several transactions to take place, the best approach is to void the transaction and re-charge the sale with the correct amount, such as including a tip that was added on to the bill later.
Lastly, look for a processing partner who can help you improve your position from being held up with poor processing methods, as well as the former operational and technical inefficiencies within your operations.
An ideal processing partner can help manage interchange rates for you by proactively overseeing the interchange tables. They can also assist in developing a personalized solution that addresses your organization’s specific payments acceptance needs so you can reduce your interchange expense.